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Supply Chain Management

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Chapter 11 Supply Chain Management PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations Management, 9e – PowerPoint PPT presentation

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Title: Supply Chain Management


1
Operations Management
Chapter 11 Supply Chain Management
PowerPoint presentation to accompany
Heizer/Render Principles of Operations
Management, 7e Operations Management, 9e
2
Outline
  • Global Company Profile Darden Restaurants
  • The Supply Chains Strategic Importance
  • Global Supply Chain Issues
  • Supply Chain Economics
  • Make-or-Buy Decisions
  • Outsourcing

3
Outline Continued
  • Ethics in the Supply Chain
  • Supply Chain Strategies
  • Many Suppliers
  • Few Suppliers
  • Vertical Integration
  • Keiretsu Networks
  • Virtual Companies

4
Outline Continued
  • Managing the Supply Chain
  • Issues in an Integrated Supply Chain
  • Opportunities in an Integrated Supply Chain
  • E-Procurement
  • Online Catalogs
  • Auctions
  • RFQs
  • Realtime Inventory Tracking

5
Outline Continued
  • Vendor Selection
  • Vendor Evaluation
  • Vendor Development
  • Negotiations

6
Outline Continued
  • Logistics Management
  • Distribution Systems
  • Third-Party Logistics
  • Cost of Shipping Alternatives
  • Logistics, Security, and JIT
  • Measuring Supply Chain Performance

7
Learning Objectives
  • When you complete this chapter you should be able
    to
  • Explain the strategic importance of the supply
    chain
  • Identify five supply chain strategies
  • Explain issues and opportunities in the supply
    chain
  • Describe approaches to supply chain negotiations

8
Learning Objectives
  • When you complete this chapter you should be able
    to
  • Evaluate supply chain performance
  • Compute percent of assets committed to inventory
  • Compute inventory turnover

9
Darden Restaurants
  • Largest publicly traded casual dining company in
    the world
  • Serves over 300 million meals annually in more
    than 1,400 restaurants in the US and Canada
  • Annual sales of 2.4 billion
  • Operations is the strategy

10
Darden Restaurants
  • Sources food from five continents and thousands
    of suppliers
  • Four distinct supply chains
  • Over 1.5 billion spent annually in supply chains
  • Competitive advantage achieved through superior
    supply chain

11
The Supply Chains Strategic Importance
Supply chain management is the integration of the
activities that procure materials and services,
transform them into intermediate goods and the
final product, and deliver them to customers
Competition is no longer between companies it is
between supply chains
12
Supply Chain Management
Important activities include determining
  • Transportation vendors
  • Credit and cash transfers
  • Suppliers
  • Distributors
  • Accounts payable and receivable
  • Warehousing and inventory
  • Order fulfillment
  • Sharing customer, forecasting, and production
    information

13
A Supply Chain for Beer
Figure 11.1
14
Global Supply Chain Issues
Supply chains in a global environment must be
able to
  • React to sudden changes in parts availability,
    distribution, or shipping channels, import
    duties, and currency rates
  • Use the latest computer and transmission
    technologies to schedule and manage the shipment
    of parts in and finished products out
  • Staff with local specialists who handle duties,
    freight, customs and political issues

15
How Supply Chain Decisions Impact Strategy
Table 11.1
16
How Supply Chain Decisions Impact Strategy
Table 11.1
17
How Supply Chain Decisions Impact Strategy
Table 11.1
18
Supply Chain Economics
Supply Chain Costs as a Percent of Sales
Table 11.2
19
Supply Chain Economics
Dollars of additional sales needed to equal 1
saved through the supply chain
Table 11.3
20
Make-or-Buy Decisions
Table 11.4
21
Make-or-Buy Decisions
Table 11.4
22
Outsourcing
  • Transfers traditional internal activities and
    resources of a firm to outside vendors
  • Utilizes the efficiency that comes with
    specialization
  • Firms outsource information technology,
    accounting, legal, logistics, and production

23
Ethics in the Supply Chain
  • Opportunities for unethical behavior are enormous
    and temptations are high
  • Many companies have strict rules and codes of
    conduct that define acceptable behavior
  • Institute for Supply Management has developed a
    detailed set of principles and standards for
    ethical behavior

24
Principles and Standards for Ethical Supply
Management Conduct
LOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE
WITH WHOM YOU DEAL FAITH IN YOUR PROFESSION
Table 11.5
25
Principles and Standards for Ethical Supply
Management Conduct
  • Avoid the intent and appearance of unethical or
    compromising practice in relationships, actions,
    and communications
  • Demonstrate loyalty to the employer by diligently
    following the lawful instructions of the
    employer, using reasonable care and granted
    authority
  • Avoid any personal business or professional
    activity that would create a conflict between
    personal interests and the interests of the
    employer

Table 11.5
26
Principles and Standards for Ethical Supply
Management Conduct
  • Avoid soliciting or accepting money, loans,
    credits, or preferential discounts, and the
    acceptance of gifts, entertainment, favors, or
    services from present or potential suppliers that
    might influence, or appear to influence, supply
    management decisions
  • Handle confidential or proprietary information
    with due care and proper consideration of ethical
    and legal ramifications and government
    regulations
  • Promote positive supplier relationships through
    courtesy and impartiality
  • Avoid improper reciprocal agreements

Table 11.5
27
Principles and Standards for Ethical Supply
Management Conduct
  • Know and obey the letter and spirit of laws
    applicable to supply management
  • Encourage support for small, disadvantaged, and
    minority-owned businesses
  • Acquire and maintain professional competence
  • Conduct supply management activities in
    accordance with national and international laws,
    customs, and practices, your organizations
    policies, and these ethical principles and
    standards of conduct
  • Enhance the stature of the supply management
    profession

Table 11.5
28
Supply Chain Strategies
  • Negotiating with many suppliers
  • Long-term partnering with few suppliers
  • Vertical integration
  • Keiretsu
  • Virtual companies that use suppliers on an as
    needed basis

29
Many Suppliers
  • Commonly used for commodity products
  • Purchasing is typically based on price
  • Suppliers compete with one another
  • Supplier is responsible for technology,
    expertise, forecasting, cost, quality, and
    delivery

30
Few Suppliers
  • Buyer forms longer term relationships with fewer
    suppliers
  • Create value through economies of scale and
    learning curve improvements
  • Suppliers more willing to participate in JIT
    programs and contribute design and technological
    expertise
  • Cost of changing suppliers is huge

31
Vertical Integration
Figure 11.2
32
Vertical Integration
  • Developing the ability to produce goods or
    service previously purchased
  • Integration may be forward, towards the customer,
    or backward, towards suppliers
  • Can improve cost, quality, and inventory but
    requires capital, managerial skills, and demand
  • Risky in industries with rapid technological
    change

33
Keiretsu Networks
  • A middle ground between few suppliers and
    vertical integration
  • Supplier becomes part of the company coalition
  • Often provide financial support for suppliers
    through ownership or loans
  • Members expect long-term relationships and
    provide technical expertise and stable deliveries
  • May extend through several levels of the supply
    chain

34
Virtual Companies
  • Rely on a variety of supplier relationships to
    provide services on demand
  • Fluid organizational boundaries that allow the
    creation of unique enterprises to meet changing
    market demands
  • Exceptionally lean performance, low capital
    investment, flexibility, and speed

35
Managing the Supply Chain
There are significant management issues in
controlling a supply chain involving many
independent organizations
  • Mutual agreement on goals
  • Trust
  • Compatible organizational cultures

36
Issues in an Integrated Supply Chain
  • Local optimization - focusing on local profit or
    cost minimization based on limited knowledge
  • Incentives (sales incentives, quantity discounts,
    quotas, and promotions) - push merchandise prior
    to sale
  • Large lots - low unit cost but do not reflect
    sales
  • Bullwhip effect - stable demand becomes lumpy
    orders through the supply chain

37
Opportunities in an Integrated Supply Chain
  • Accurate pull data
  • Lot size reduction
  • Single stage control of replenishment
  • Vendor managed inventory
  • Blanket orders

38
Opportunities in an Integrated Supply Chain
  • Standardization
  • Postponement
  • Drop shipping and special packaging
  • Pass-through facility
  • Channel assembly

39
Radio Frequency Tags
40
E-Procurement
  • Uses the internet to facilitate purchasing
  • Electronic ordering and funds transfer
  • Electronic data interchange (EDI)
  • Advanced shipping notice

41
E-Procurement
  • Online catalogs
  • Catalogs provided by vendors
  • Catalogs published by intermediaries
  • Exchanges provided by buyers

42
Internet Trading Exchanges
  • Health care products ghx.com
  • Retail goods gnx.com
  • Defense and aerospace products exostar.com
  • Food, beverage, consumer products transora.com
  • Steel and metal products metalsite.com
  • Hotels avendra.com

43
E-Procurement
  • Auctions
  • Maintained by buyers, sellers, or intermediaries
  • Low barriers to entry
  • Increase in the potential number of buyers

44
E-Procurement
  • RFQs
  • Can make requests for quotes (RFQs) less costly
  • Improves supplier selection
  • Real-time inventory tracking

45
Vendor Selection
  • Vendor evaluation
  • Critical decision
  • Find potential vendors
  • Determine the likelihood of them becoming good
    suppliers
  • Vendor Development
  • Training
  • Engineering and production help
  • Establish policies and procedures

46
Vendor Selection
  • Negotiations
  • Cost-Based Price Model - supplier opens books to
    purchaser
  • Market-Based Price Model - price based on
    published, auction, or indexed price
  • Competitive Bidding - used for infrequent
    purchases but may make establishing long-term
    relationships difficult

47
Vendor Evaluation
48
Logistics Management
  • Objective is to obtain efficient operations
    through the integration of all material
    acquisition, movement, and storage activities
  • Is a frequent candidate for outsourcing
  • Allows competitive advantage to be gained through
    reduced costs and improved customer service

49
Distribution Systems
  • Trucking
  • Moves the vast majority of manufactured goods
  • Chief advantage is flexibility
  • Railroads
  • Capable of carrying large loads
  • Little flexibility though containers and
    piggybacking have helped with this

50
Distribution Systems
  • Airfreight
  • Fast and flexible for light loads
  • May be expensive

51
Distribution Systems
  • Waterways
  • Typically used for bulky, low-value cargo
  • Used when shipping cost is more important than
    speed

52
Distribution Systems
  • Pipelines
  • Used for transporting oil, gas, and other
    chemical products

53
Third-Party Logistics
  • Outsourcing logistics can reduce costs and
    improve delivery reliability and speed
  • Coordinate supplier inventory with delivery
    services
  • May provide warehousing, assembly, testing,
    shipping, customs

54
Cost of Shipping Alternatives
  • Product in transit is a form of inventory and has
    a carrying cost
  • Faster shipping is generally more expensive than
    slower shipping
  • We can evaluate the two costs to better
    understand the trade-off

55
Cost of Shipping Alternatives
Value of connectors 1,750.00 Holding cost
40 per year Second carrier is 1 day faster and
20 more expensive
(.40 x 1,750)/ 365 1.92
Since it costs less to hold the product one day
longer than it does for the faster shipping
(1.92 lt 20), we should use the cheaper, slower
shipper
56
Logistics, Security, and JIT
  • Borders are becoming more open in the U.S. and
    around the world
  • Monitoring and controlling stock moving through
    supply chains is more important than ever
  • New technologies are being developed to allow
    close monitoring of location, storage
    conditions, and movement

57
Measuring Supply Chain Performance
Table 11.6
58
Measuring Supply Chain Performance
  • Assets committed to inventory

Investment in inventory 11.4 billion Total
assets 44.4 billion
Percent invested in inventory (11.4/44.4) x 100
25.7
59
Measuring Supply Chain Performance
Table 11.7
60
Measuring Supply Chain Performance
  • Inventory turnover

61
Measuring Supply Chain Performance
Table 11.8
62
Measuring Supply Chain Performance
  • Inventory turnover

63
Measuring Supply Chain Performance
14.2 / 1.69 8.4
64
Measuring Supply Chain Performance
1.69 / .273 6.19 weeks
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